In just hours, Bitcoin’s bullish momentum for 2025 came crashing down. While the $100,000 support remains intact for now, the Fed’s latest moves could stall future growth. Here’s what’s behind the drop
Why Did Bitcoin Drop Over 6% in Just 40 Hours?
The Federal Reserve’s recent interest rate cut—typically viewed as a tailwind for Bitcoin and other cryptocurrencies due to the liquidity boost it provides—didn’t play out as expected this time. The Fed’s 25-basis-point reduction, bringing rates to a range of 4.25%-4.5%, initially seemed like it might fuel risk-on sentiment. Yet, Bitcoin’s price took a sharp dive, erasing its weekly gains and shedding over 6% in just 40 hours.
This sudden decline, the steepest since September, wiped out more than $860 million in liquidations. Here are four key factors behind Bitcoin’s rapid drop:
1. Fed’s Revised Economic Projections
Bitcoin’s selloff was exacerbated by the Federal Reserve’s updated economic outlook, which now projects just two rate cuts in 2025, down from the four cuts forecasted in September.
This shift has raised concerns about tightening liquidity in the coming months—a challenging scenario for highly volatile assets like Bitcoin, which rely on ample market liquidity to sustain momentum.
2. Powell’s Stance on Bitcoin as a Strategic Reserve
In a blow to Bitcoin’s institutional narrative, Fed Chair Jerome Powell definitively ruled out the possibility of the Federal Reserve creating a strategic reserve of Bitcoin. Powell clarified that the Federal Reserve Act prohibits the institution from holding Bitcoin or other cryptocurrencies.
While these comments had no immediate impact on Bitcoin’s intrinsic value, they reinforced skepticism about the asset’s ability to gain broader institutional backing during periods of economic uncertainty.
3. Strengthening of the U.S. Dollar
A surge in the U.S. dollar added to Bitcoin’s woes. The Dollar Index (DXY) climbed 1.2%, reaching its highest level since November 2022. Historically, a stronger dollar pressures safe-haven assets like gold—and by extension, Bitcoin, which is often dubbed “digital gold.”
As the dollar strengthened, Bitcoin struggled to maintain key price levels, raising fears it could breach critical support thresholds in the near term.
4. Rising Market Volatility
Escalating market uncertainty further contributed to Bitcoin’s decline. The CBOE Volatility Index (VIX), Wall Street’s “fear gauge,” jumped 58% to 25, signaling heightened investor anxiety.
In such conditions, riskier assets like Bitcoin often face significant headwinds as investors move to reduce exposure and seek safer havens.
Conclusion
A combination of tighter monetary policy, a stronger dollar, and increased market volatility has put Bitcoin under significant pressure. While Bitcoin has been heralded as a hedge against traditional financial instability, recent events highlight its vulnerability to shifts in macroeconomic dynamics.
|DISCLAIMER
The information and considerations contained in this article should not be used as the sole or primary basis for making investment decisions. The reader retains full freedom in his or her investment choices and full responsibility for making them, since only he or she knows his or her risk appetite and time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to the public to save.| Original article published on Money.it Italy 2024-12-19 17:21:05. Original title: Perché Bitcoin ha perso oltre il 6% in meno di due giorni
